Glaxo (GSK) Beats Q2 Earnings Estimates, Revenues Up Y/Y

GlaxoSmithKline plc (NYSE:GSK) reported second-quarter 2016 core earnings of 70 cents per American Depositary Share (ADS), beating the Zacks Consensus Estimate of 55 cents.

Core earnings were also up 16% year over year at a constant exchange rate (CER). On the other hand, revenues grew 4% at CER to £6.5 billion driven by all of its business segments. The top line was primarily backed by sales growth of new pharmaceutical and vaccine products.

All growth rates mentioned below are on a year-on-year basis and at CER.

Quarterly Highlights

Glaxo reports results under three segments: Pharmaceuticals, Vaccines and Consumer Healthcare.

While revenues at the Pharmaceuticals and Consumer Healthcare segments were up 2% and 7%, respectively, the Vaccines segment witnessed an 11% surge.

New Pharmaceutical and Vaccine products – like Relvar/Breo Ellipta and Eperzan/Tanzeum among others – registered sales of £1.05 billion in the reported quarter. Glaxo expects these products to deliver at least £6 billion in annual revenues by 2018.

However, within Pharmaceuticals, sales were down 9% in International Pharmaceuticals. Sales in Emerging Markets (down 9%) were impacted by continued pressure on the Chinese business from healthcare reforms, which include significant price reductions and ongoing business restructuring at the company.

The segment also saw a 1% decline in U.S. sales, which was a result of generic competition for Avodart (down 36%) and dwindling sales of Relenza (down 97%) due to a reallocation of government funding. In Europe too, sales were down 7% mainly due to an 11% decline in Respiratory sales.

Sales of Glaxo’s respiratory drug Advair/Seretide continued to decline (13%) in the quarter.

Nevertheless, robust sales of Tivicay (£225 million) and Triumeq (£409 million) drove a 44% surged at the HIV segment in the reported quarter.

In the Consumer Healthcare division, sales witnessed an increase in the U.S. (9%), Europe (1%) and International markets (9%). Growth was primarily driven by contributions from the Wellness and Oral health brands such as Flonase OTC, Excedrin, Voltaren and Sensodyne.

Meanwhile, the Vaccines segment benefited from the continued uptake of newly acquired meningitis vaccine, Bexsero, from Novartis AG (NYSE:NVS) .

GLAXOSMITHKLINE Price and EPS Surprise

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Outlook

Glaxo has lifted its outlook for 2016. The core earnings percentage growth rate is now expected to be in the range of 11–12%.

Pipeline Update

Glaxo continues to progress with the candidates in its pipeline. In the second half of 2016, the company expects to execute four significant regulatory filings – Closed Triple for chronic obstructive pulmonary disease, Shingrix vaccine for shingles, Benlysta subcutaneous formulation for systemic lupus erythematosus and sirukumab for rheumatoid arthritis.

Our Take

Glaxo’s second-quarter 2016 results were impressive with the company beating earnings expectations. Moreover, revenues were up on a year-over-year basis driven by contributions from each of its business segments. We are also positive on the performance of both new and acquired products. These should help support the top line in the future and ease the impact of generic erosion of Advair. Further, we are encouraged by Glaxo’s efforts on developing its pipeline candidates.

Glaxo is a Zacks Rank #3 (Hold) stock. A couple of better-ranked stocks in the health care sector are Innoviva, Inc. (NASDAQ:INVA) and ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) , both sporting a Zacks Rank #1 (Strong Buy).

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